A Brief Introduction to the Eurozone Debt Crisis

If you have been closely following the economic news, then chances are you have heard something about the Eurozone debt crisis. The European sovereign debt crisis is one of the most pivotal issues happening today. The tremors from this crisis are being felt not only throughout Europe but all over the world. This has swept across the Atlantic to the United States and Asia as well, shaking up consumers and companies in various sectors. The consequences of Europe’s exorbitant spending have been limited so far. But considering the closely interlinked relationship of the US and Europe, any slow down or financial turmoil across the Atlantic will considerably affect the US financial markets as well.

The Eurozone Debt Crisis Explained

The Eurozone debt crisis began in late 2009 with some of the European countries having too much debt to the point where they became unable to repay them. While a few Eurozone countries remain stable and competitive from an economic viewpoint, other countries are way over leveraged which then caused them to acquire excessive debt that is relative to the size of their economies.

The causes of the crisis vary for each country. For most European countries, the sovereign debt was contributed by private debts that came from a property bubbles. Many economists regard Greece as the biggest contributor to the debt with its unsustainable public sector wage and pension commitments to its citizens.

Since 2010, the sovereign debt continued its intensity. The Eurozone officials have been working hard to pacify the effects, approving a rescue package worth 750 billion Euros and implementing more measures to prevent the collapse of member economies. However, these measures have come at the price of austerity measures for the affected economies. For Greece, this meant exponential increases in pensions and taxes, budget cuts and structural modifications in the public service sector.

In short then, it is pretty obvious that the Eurozone debt crisis has a great impact on the rates. It all boils down to how confident investors feel Greece or Spain can pay their debts. Considering the excessive amount of debts of these countries, investors are outright refusing to lend to certain countries, or demanding sky high rates on these loans.